DOB: Key Resource Group et al - FINE

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IN THE MATTER OF:

KEY RESOURCE GROUP, LLC
("Key Resource Group")

DALE C. LUCAS ("Lucas")

RUSSELL KILGARIFF ("Kilgariff")

MICHAEL J. MCNAUL ("McNaul")

MARK T. DUBOISE ("Duboise")
ID NO. 11018123

MIKE BAY ("Bay")
ID NO. 11022884

GEORGE PHILLIPS ("Phillips")

GREG HUNTER ("Hunter")

RONALD FOLKINGA ("Folkinga")
CRD NO. 2608001

MARK DEATON ("Deaton")
ID NO. 11022021

    (Collectively "Respondents")

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ORDER IMPOSING FINE

DOCKET NOS. CF-2007-7073-S
                         CF-2007-7297-S



I.  PRELIMINARY STATEMENT
 
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division of the Department of Banking (“Department”), conducted an investigation into the activities of Respondents, pursuant to Section 36b-26(a) of the Act, to determine if Respondents had violated, were violating or were about to violate provisions of the Act or Regulations;
 
WHEREAS, on December 10, 2007, the Commissioner, acting pursuant to Section 36b-27(a) of the Act, as amended by Public Act 07-91, Section 36b-27(d) of the Act, prior to October 1, 2003, and Section 36b-27(d) of the Act, issued an Order to Cease and Desist (“Order”), Notice of Intent to Fine (“Fine Notice”) and Notice of Right to Hearing against Respondents (collectively “Notice”), which Notice is incorporated herein by reference;
 
WHEREAS, the Order provided that it would remain in effect and become permanent against Respondents if a hearing was not requested within 14 days of its receipt;
 
WHEREAS, the Fine Notice stated that the Commissioner intended to impose a fine against Respondents, and that a hearing would be held on the matters alleged in the Fine Notice on February 4, 2008 (“Fine Hearing”);
 
WHEREAS, the Fine Notice stated that:  if Key Resource Group failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Two Million Four Hundred Seventy-five Thousand Dollars ($2,475,000) be imposed upon Key Resource Group; if Lucas failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed upon Lucas; if Kilgariff failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed upon Kilgariff; if McNaul failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed upon McNaul; if Duboise failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Sixty Thousand Dollars ($60,000) be imposed upon Duboise; if Bay failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Three Hundred Fifteen Thousand Dollars ($315,000) be imposed upon Bay; if Phillips failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of One Hundred Fifty Thousand Dollars ($150,000) be imposed upon Phillips; if Hunter failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Four Hundred Fifty Thousand Dollars ($450,000) be imposed upon Hunter; if Folkinga failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Three Hundred Thousand Dollars ($300,000) be imposed upon Folkinga; and if Deaton failed to appear at the Fine Hearing, the Commissioner may order that a maximum fine of Three Hundred Thousand Dollars ($300,000) be imposed upon Deaton;
 
WHEREAS, on December 11, 2007, the Notice was sent to by registered mail, return receipt requested, to Key Resource Group, 155 North Market, Suite 900, Wichita, Kansas 67202 (Registered Mail No. RB028034168US);
 
WHEREAS, on December 28, 2007, the Notice sent to Key Resource Group was returned to the Department marked “Returned To Sender – Undeliverable As Addressed, Unable To Fwd, D.T.STA.”;
 
WHEREAS, Section 36b-33(h) of the Act provides, in pertinent part, that “[w]hen any person, including any nonresident of this state, engages in conduct prohibited or made actionable by sections 36b-2 to 36b-33, inclusive, . . . and such person has not filed a consent to service of process under subsection (g) of this section and personal jurisdiction over such person cannot otherwise be obtained in this state, that conduct shall be considered equivalent to such person’s appointment of the commissioner or the commissioner’s successor in office to be such person’s attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against such person or such person’s successor executor or administrator which grows out of that conduct and which is brought under said sections . . . with the same force and validity as if served on such person personally.  Service may be made by leaving a copy of the process in the office of the commissioner, and it is not effective unless (1) the plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to the defendant or respondent at the defendant’s or respondent’s last known address or takes other steps which are reasonably calculated to give actual notice, and (2) the plaintiff’s affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within such further time as the court allows”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Key Resource Group in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Lucas, 155 North Market, Suite 900, Wichita, Kansas 67202 (Registered Mail No. RB028034171US);
 
WHEREAS, on December 28, 2007, the Notice sent to Lucas was returned to the Department marked “Returned To Sender – Undeliverable As Addressed, Unable To Fwd, D.T.STA.”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Lucas in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Kilgariff, 155 North Market, Suite 900, Wichita, Kansas 67202 (Registered Mail No. RB028034185US);
 
WHEREAS, on December 28, 2007, the Notice sent to Kilgariff was returned to the Department marked “Returned To Sender – Undeliverable As Addressed, Unable To Fwd, D.T.STA.”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Kilgariff in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to McNaul, 155 North Market, Suite 900, Wichita, Kansas 67202 (Registered Mail No. RB028034199US);
 
WHEREAS, on December 28, 2007, the Notice sent to McNaul was returned to the Department marked “Returned To Sender – Undeliverable As Addressed, Unable To Fwd, D.T.STA.”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to McNaul in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Duboise, 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886 (Registered Mail No. RB028034208US);
 
WHEREAS, on December 19, 2007, Duboise received the Notice;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Bay, 39201 Ingraham Street, Building 11, Apartment 111, San Diego, California 92019 (Registered Mail No. RB028034211US);
 
WHEREAS, on January 28, 2008, the Notice sent to Bay was returned to the Department marked “Returned To Sender –Unclaimed”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Bay in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Phillips, 17555 Ventura Boulevard, Suite 200, Encino, California 91316 (Registered Mail No. RB028038225US);
 
WHEREAS, on December 24, 2007, the Notice sent to Phillips was returned to the Department marked “Returned To Sender – Attempted, Not Known”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Phillips in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Hunter, 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886 (Registered Mail No. RB028034239US);
 
WHEREAS, on December 19, 2007, Hunter received the Notice;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Folkinga, 2514 East 3810 North, Twin Falls, Idaho 83301 (Registered Mail No. RB028034242US);
 
WHEREAS, on January 28, 2008, the Notice sent to Folkinga was returned to the Department marked “Returned To Sender – Unclaimed”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Folkinga in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on December 11, 2007, the Notice was sent by registered mail, return receipt requested, to Deaton, 1025 Shoshone Street North, Twin Falls, Idaho 83301 (Registered Mail No. RB028034256US);
 
WHEREAS, on December 24, 2007, the Notice sent to Deaton was returned to the Department marked “Returned To Sender – Attempted, Not Known”;
 
WHEREAS, on January 10, 2008, the Notice was served on the Commissioner, and on January 16, 2008, Notice of Service on the Banking Commissioner was sent by registered mail, return receipt requested, to Deaton in accordance with Section 36b-33(h) of the Act;
 
WHEREAS, on January 22, 2008, the Orders issued against Duboise and Hunter were certified as permanent on January 3, 2008, which certifications are incorporated herein by reference;
 
WHEREAS, on January 31, 2008, the Orders issued against Key Resource Group, Lucas, Kilgariff, McNaul, Bay, Phillips, Folkinga and Deaton were certified as permanent on January 31, 2008, which certifications are incorporated herein by reference;
 
WHEREAS, the Commissioner found in the Order, with respect to the activity described therein, that Key Resource Group, Lucas, Kilgariff and McNaul violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, and Duboise, Bay, Phillips, Hunter, Folkinga and Deaton violated Sections 36b-16, 36b-4(a) and 36b-6(a) of the Act;
 
WHEREAS, Attorney Paul A. Bobruff was appointed Hearing Officer for the Fine Hearing;
 
WHEREAS, Attorney Jesse B. Silverman represented the Department at the Fine Hearing;
 
WHEREAS, on February 4, 2008, Respondents failed to appear at the Fine Hearing;
 
WHEREAS, Section 36a-1-31(b) of the Regulations of Connecticut State Agencies provides, in pertinent part, that “[w]hen a party fails to appear at a scheduled hearing, the allegations against the party may be deemed admitted.  Without further proceedings or notice to the party, the presiding officer shall submit to the commissioner a proposed final decision containing the relief sought in the notice, provided the presiding officer may, if deemed necessary, receive evidence from the department, as part of the record, concerning the appropriateness of the amount of any . . . fine . . . sought in the notice”;
 
WHEREAS, pursuant to Section 36a-1-31(b) of the Regulations of Connecticut State Agencies, Hearing Officer Bobruff received evidence from the Department during the Fine Hearing concerning the appropriateness of the amount of fine sought in the Notice.  The Department indicated, based on the facts set forth in paragraphs 6 through 31, inclusive, of the Notice, that the number of violations by Key Resource Group of Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act that occurred after October 1, 2003, was improperly calculated.  Paragraphs 33, 35 and 38 of the Notice stated that Key Resource Group’s conduct forms the basis for the imposition of a fine for 16 violations of Section 36b-16 of the Act, 16 violations of Section 36b-4(a) of the Act and 16 violations of Section 36b-6(b) of the Act under Section 36b-27(d) of the Act as it currently exists.  However, based on the facts set forth in the Notice, there were eight violations of Section 36b-16 of the Act, eight violations of Section 36b-4(a) of the Act and eight violations of Section 36b-6(b) of the Act by Key Resource Group that occurred after October 1, 2003, which form the basis for the imposition of a fine under Section 36b-27(d) of the Act as it currently exists.  The Department indicated that it was reducing the amount of the fine sought in the Notice against Key Resource Group from Two Million Four Hundred Seventy-five Thousand Dollars ($2,475,000) to a fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000);
 
WHEREAS, Section 36b-27(d) of the Act, prior to October 1, 2003, authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed Ten Thousand Dollars ($10,000) per violation for violations that occurred prior to October 1, 2003, and Section 36b-27(d) of the Act currently authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation for violations that occurred on or after October 1, 2003;
 
WHEREAS, Section 36b-31(a) of the Act provides, in pertinent part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive”;
 
AND WHEREAS, Section 36b-31(b) of the Act provides, in pertinent part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive.”


II.  FINDINGS OF FACT AND CONCLUSIONS OF LAW
 
1.
The facts as set forth in paragraphs 6 through 31, inclusive, of the Notice shall constitute findings of fact within the meaning of Section 4-180(c) of the Connecticut General Statutes, and the conclusions set forth in paragraphs 32 through 38, inclusive, of the Notice shall constitute conclusions of law within the meaning of Section 4-180(c) of the Connecticut General Statutes and Section 36a-1-52 of the Regulations of Connecticut State Agencies, with the exception that in paragraphs 33, 35 and 38 of the Notice, Key Resource Group’s conduct forms the basis for the imposition of a fine for eight violations of Section 36b-16 of the Act, eight violations of Section 36b-4(a) of the Act, eight violations of Section 36b-6(b) of the Act and under Section 36b-27(d) of the Act as it currently exists and not the 16 violations stated in these paragraphs in the Notice.
 
2.
The Commissioner finds that based upon Respondents’ offer and sale of securities to at least eight Connecticut investors, which securities were not registered in Connecticut, in violation of Section 36b-16 of the Act, the facts require the imposition of a fine against (i) Key Resource Group in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (ii) Lucas in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iii) Kilgariff in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iv) McNaul in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (v) Duboise in the amount of Twenty Thousand Dollars ($20,000) for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (vi) Bay in the amount of One Hundred Five Thousand Dollars ($105,000) for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (vii) Phillips in the amount of Fifty Thousand Dollars ($50,000) for one violation under Section 36b-27(d) of the Act as it currently exists; (viii) Hunter in the amount of One Hundred Fifty Thousand Dollars ($150,000) for three violations under Section 36b-27(d) of the Act as it currently exists; (ix) Folkinga in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists; and (x) Deaton in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists.
 
3.
The Commissioner finds that based upon the nature of Respondents’ actions in violation of Section 36b-4(a) of the Act, the facts require the imposition of a fine against (i) Key Resource Group in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (ii) Lucas in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iii) Kilgariff in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iv) McNaul in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (v) Duboise in the amount of Twenty Thousand Dollars ($20,000) for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (vi) Bay in the amount of One Hundred Five Thousand Dollars ($105,000) for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (vii) Phillips in the amount of Fifty Thousand Dollars ($50,000) for one violation under Section 36b-27(d) of the Act as it currently exists; (viii) Hunter in the amount of One Hundred Fifty Thousand Dollars ($150,000) for three violations under Section 36b-27(d) of the Act as it currently exists; (ix) Folkinga in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists; and (x) Deaton in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists.
 
4.
The Commissioner finds that based upon Duboise, Bay, Phillips, Hunter, Folkinga and Deaton acting as agents of issuer, absent registration, in violation of Section 36b-6(a) of the Act, the facts require the imposition of a fine against (i) Duboise in the amount of Twenty Thousand Dollars ($20,000) for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (ii) Bay in the amount of One Hundred Five Thousand Dollars ($105,000) for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (iii) Phillips in the amount of Fifty Thousand Dollars ($50,000) for one violation under Section 36b-27(d) of the Act as it currently exists; (iv) Hunter in the amount of One Hundred Fifty Thousand Dollars ($150,000) for three violations under Section 36b-27(d) of the Act as it currently exists; (v) Folkinga in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists; and (vi) Deaton in the amount of One Hundred Thousand Dollars ($100,000) for two violations under Section 36b-27(d) of the Act as it currently exists.
 
5.
The Commissioner finds that based upon the nature of the actions of Key Resource Group, Lucas, Kilgariff and McNaul in violation of Section 36b-6(b) of the Act, the facts require the imposition of a fine against (i) Key Resource Group in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (ii) Lucas in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iii) Kilgariff in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; and (iv) McNaul in the amount of Four Hundred Twenty-five Thousand Dollars ($425,000) for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists.
 
6.
Section 36b-31(b) of the Act requires that the Commissioner find that an order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 33b-33, inclusive, of the Act.  Although the Commissioner is not required to make all these findings to make an order, since Section 36b-31(b) of the Act is clearly in the disjunctive, all of these elements are present in this case.  While the term “public interest” is not defined in the Act, courts have determined that words of wide generality, like “public interest”, must take their meaning from the substantive provisions and purposes of the legislation and the words must be interpreted in the context of the regulatory scheme.  See NAACP v. Federal Power Comm’n, 425 U.S. 662 (1976); N.Y. Central Sec. Corp. v. United States, 287 U.S. 12 (1932).  “[I]t is for the legislature to determine what is in the public interest . . .”.  Brosnan v. Sacred Heart Univ., 1997 Conn. Super. Lexis 2815, *47 (1997) (internal quotation marks omitted) (quoting West v. Egan, 18 Conn. Supp. 447, 450 (1953)).  “[T]he primary purpose behind . . . [the Act] was to institute comprehensive registration requirements and thereby improve surveillance of securities trading.”  State v. Andresen, 256 Conn. 313, 329 (2001) (internal quotation marks omitted) (quoting Connecticut National Bank v. Giacomi, 233 Conn. 304, 320 (1995)).  “[S]tate securities laws, or ‘blue sky laws,’ are remedial statutes.”  Id. at 322-23 (footnote omitted); see also, Papic v. Burke, 2007 Conn. Super. LEXIS 820 (Conn. Super. Ct. 2007).  State securities laws contain antifraud provisions, require registration of brokers and sellers of securities and registration of securities themselves.  Connecticut National Bank v. Giacomi, 233 Conn. at 320.  The dominating purpose of state securities laws is to protect the public and to prevent and punish the fraudulent floating of securities.  Andresen 256 Conn. at 323.  Thus, the “public interest” as it relates to the purposes of the Act includes comprehensive registration requirements to improve surveillance of securities trading, and to protect the public from fraudulent exploitation in the offering and sale of securities which are key elements in the network of safeguards the legislature has enacted to protect the investor.
 
In this case, the actions of Key Resource Group, Lucas, Kilgariff and McNaul in violation of the Act involved disregarding regulatory prohibitions:  (1) on offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, directly or indirectly, employing any device, scheme or artifice to defraud or omitting to a state material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person; and (3) on employing agents of issuer absent registration.  The actions of Duboise, Bay, Phillips, Hunter, Folkinga and Deaton in violation of the act involved disregarding regulatory prohibitions:  (1) on offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, directly or indirectly, employing any device, scheme or artifice to defraud or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person; and (3) on acting as an agent of issuer absent registration.
 
Specifically, Respondents offered and sold unregistered securities in the form of fractional, undivided interests in oil and gas rights and general partnerships in oil and gas development projects to at least eight Connecticut investors who invested a total of more than $200,000.  In addition, Key Resource Group, controlled by Lucas, Kilgariff and McNaul, employed Duboise, Bay, Phillips, Hunter, Folkinga and Deaton as agents of issuer, absent registration, and Duboise, Bay, Phillips, Hunter, Folkinga and Deaton acted as agents of issuer, absent registration.  Respondents’ conduct in connection with the offer and sale of the unregistered securities was egregious.  The investments were sold to investors with no previous experience with these types of investments and Respondents failed to disclose any risk factors to the investors in the investment or that the sales agents were paid as much of 50% of the investment as a commission.  There was monetary harm to the Connecticut investors as a result of their investment in unregistered securities offered and sold by Respondents, since all of the investors lost money as a result of their investment and Respondents did not reimburse the investors’ losses.
 
Consequently, the Commissioner finds that based upon the nature of Respondents’ actions in violation of the Act, this order imposing fine against Respondents is necessary and appropriate in the public interest and for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 36b-33, inclusive, of the Act.
 
7.
The Commissioner finds that the Notice was given in compliance with Section 36b-27(d) of the Act and Section 4-177 of the Connecticut General Statutes.
 
 
III.  ORDER
 
Having read the record, I hereby ORDER, pursuant to Section 36b-27(d) of the Act prior to October 1, 2003, and Section 36b-27(d) of the Act as it currently exists, that:
 
1.
A fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed against Key Resource Group, LLC, to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
2.
A fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed against Dale C. Lucas to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
3.
A fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed against Russell Kilgariff to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
4.
A fine of One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000) be imposed against Michael J. McNaul to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
5.
A fine of Sixty Thousand Dollars ($60,000) be imposed against Mark T. Duboise to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
6.
A fine of Three Hundred Fifteen Thousand Dollars ($315,000) be imposed against Mike Bay to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
7.
A fine of One Hundred Fifty Thousand Dollars ($150,000) be imposed against George Phillips to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
8.
A fine of Four Hundred Fifty Thousand Dollars ($450,000) be imposed against Greg Hunter to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
9.
A fine of Three Hundred Thousand Dollars ($300,000) be imposed against Ronald Folkinga to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed;
 
10.
A fine of Three Hundred Thousand Dollars ($300,000) be imposed against Mark Deaton to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than 45 days from the date this Order is mailed; and
 
11.
This Order shall become effective when mailed.
 
 

                                                           ________/s/_________
Dated at Hartford, Connecticut                  Howard F. Pitkin
this 29th day of September 2008.               Banking Commissioner
 

This Order was mailed by registered mail,
return receipt requested, to Respondents
on September 30, 2008.
 

Key Resource Group, LLC              Registered Mail No. RB027868404US
155 North Market Street, Suite 900
Wichita, KS 67202
 
Dale C. Lucas                             Registered Mail No. RB027868418US
155 North Market Street, Suite 900
Wichita, KS 67202
 
Russell Kilgariff                            Registered Mail No. RB027868421US
155 North Market Street, Suite 900
Wichita, KS 67202
 
Michael J. McNaul                        Registered Mail No. RB027868435US
155 North Market Street, Suite 900
Wichita, KS 67202
 
Mark T. Duboise                          Registered Mail No. RB027868449US
4676 Lakeview Avenue, Suite 113
Yorba Linda, CA 92886
 
Mike Bay                                    Registered Mail No. RB027868452US
39201 Ingraham Street
Building 11, Apartment 111
San Diego, CA 92019
 
George Phillips                             Registered Mail No. RB027868466US
17555 Ventura Boulevard, Suite 200
Encino, CA 91316
 
Greg Hunter                                Registered Mail No. RB027868470US
4676 Lakeview Avenue, Suite 113
Yorba Linda, CA 92886
 
Ronald Folkinga                            Registered Mail No. RB027868483US
2514 East 3810 North
Twin Falls, ID 83301
 
Mark Deaton                                Registered Mail No. RB027868497US
1025 Shoshone Street North
Twin Falls, ID 83301
 

 


Administrative Orders and Settlements